Solving the paradox: Trading more, without more resources

Published on 23 January 2023

Credit traders are not likely to get more resources for up to 24 months on the desk, despite new inflows into bond funds. That creates a challenge as volume of work increases without any obvious way of better managing that workload.

Izzy Conlin, former trader and managing director for US credit at Tradeweb, says that the next evolutions of existing protocols allow dealing desks to scale up their trading capacity without having to reinvent how they trade. She tells us the best ways for traders to make their current workflows more efficient thanks to investment by trading platforms, which is mitigating any limits to resourcing on the buy-side trading desk.

Transcript of interview:

Dan Barnes: Welcome to Trader TV – your insight into institutional trading. I’m Dan Barnes.

In 2023, we’ve seen record issuance at the start of the year in certain parts of the investment grade credit market. We’ve also seen fairly wide spreads, which adds up to pressure on the buy side trading desk. Joining me to discuss how to alleviate this pressure without disrupting the way that traders act today is Izzy Conlin, managing director of US credit at Tradeweb.

Izzy, welcome back to the show.

Izzy Conlin: Thanks, Dan. Thanks for having me.

Dan Barnes: So to start with, what’s the fastest route for credit traders to scale up their capacity today?

Izzy Conlin: Market structure in the credit space is evolving. Liquidity conditions are changing with this proliferation of data, more composite pricing information. And I don’t think traders are necessarily looking to reinvent the wheel, but I do think they’re looking for more innovative technology solutions for their workflow.

The best example I can give, Dan, is the RFQ protocol. You know me, I was a trader. I used the RFQ protocol a lot. It works extremely well. But what we noticed was that it hadn’t necessarily evolved too much the same way that the market was evolving.

Traders were looking for more functionality, more features. So in conjunction with our trading community and our client base, who helps us with a lot of these innovations, we worked with them to build this modern generation RFQ protocol. Modern in the sense that you can trade 300 items, which was unheard of in the RFQ protocol. You can trade buys and sells on one list, different market segments, IG, high yield or EM, you could have different settle dates per line item, multi counter, a lot of different features that clients were really looking for to scale some of their trading capacity.

And so far we’ve seen really, really positive feedback. We think clients really are gravitating towards this new functionality and the RFQ ticket and really benefiting from it.

Dan Barnes: I’ve been speaking to traders at the start of the year, told me that even with inflows into their fixed income businesses, they’re not necessarily going to see more resourcing for 12 to 24 months on the desk. Is there anything they can do to handle the greater pressure they’re under in the interim?

Izzy Conlin: There’s a lot of different offerings and there’s a lot of technology that’s sort of more out of the box where you don’t necessarily need that development work to engage in some of these protocols. So I gave the example of our hybrid RFQ where you can do a regular traditional RFQ but also leverage our AiEX automated technology without any development work. And a lot of traders don’t necessarily think that that’s possible, but it absolutely is.

That’s only one protocol I’ve given an example of but there’s many others where technology can really help you scale up your capacity within trading and it doesn’t need to take a year or two years to do. It’s a very out of the box solution.

Dan Barnes: So we’re seeing pressure mounting on trading desk in terms of the volumes they have to process and the resources they have. How is that actually affecting trading behavior?

Izzy Conlin: Traders are being asked to do a lot more trades given sort of some of the advancements in technology that has aided in some of this liquidity. But they may be sort of doing that with the same resources that they had five or ten years ago.

Here at Tradeweb, we don’t believe there’s a one size fits all. We know the traders are different. We know they’re unique. We know there’s customized workflows out there. We try and create innovative technology solutions for that entire trade lifecycle. So whether that be a high touch trade, like a voice trade that you want to use our voice protocol to sort of process that over our system.

Maybe it’s a low touch trade, like an AiEX automated trade where you can use our award winning AiEX technology to do trading more on a sort of automated parameter based way. Or maybe it’s something in the middle, like a portfolio trade where you want to trade a large notional size discretely, many line items, package that into sort of one list and do that all at once with a dealer.

We’re seeing that the future kind of looks like technology being part of all facets of the workflow. We want to make sure that we’re working with our client base to offer some of these innovative solutions across the board.

Dan Barnes: If you look at the stressed market conditions we saw last year. Could you give examples of how those protocols might map across certain scenarios?

Izzy Conlin: What we noticed here at Tradeweb was that we saw a lot of usage of our portfolio trading protocol. And it’s interesting because this protocol has a real high certainty of execution. We have, you know, 95% plus hit rate. So in times of volatility and stress, where you’re really looking to move risk, especially large amounts of risk quickly, with the right analytics, with the right pricing, we saw the usage of the portfolio trading protocol really go up, especially in the front end of the curve.

Dan Barnes: So that’s what’s happening in stressed market circumstances. How does that contrast with how traders are using your solutions in non-stress circumstances?

Izzy Conlin: Yeah, so we’re seeing more usage of technology across the board no matter what the workflow is. And so whether it’s that portfolio trading protocol, that voice protocol, we’re just noticing a greater adoption of technology in existing workflows where people may have been doing something a certain way for 20 years, but they realized there could be technology that can make the workflow more efficient. And no matter who the trader is, we see a lot of gravitation towards that and towards technology usage.

Dan Barnes: How else do you see demand’s changing?

Izzy Conlin: We see a renewed client interest in engaging with and supporting a lot of the emerging brokers that we have on the Tradeweb platform. So we actually launched our Spotlight Dealer Diversity Initiative to have more of a holistic support across all of our products that we offer at Tradeweb with a lot of these spotlight dealers.

And we specifically launched an RFQ protocol for spotlight dealers and credit, where a client can engage in their regular, traditional RFQ protocol but trade directly with the spotlight dealers, while also leveraging the all-trade, A2A network, so that being other dealers, the buy-side or liquidity through that channel. And since we’ve launched, we have 14 spotlight dealers that are signed up and so far we’ve done 1.6 billion in volume. So I’ve been really impressed by some of the interest there and the uptick in usage from our client base.

Dan Barnes: As a former trader, if you are assessing a new challenge for yourself in 2023, what would it be?

Izzy Conlin: Staying curious, being willing to challenge that status quo, which I sort of mentioned in the beginning. I think that’s really where I see something sort of shifting in this year and maybe a little bit of an inflection point. And I’m always a proponent of technology and trying to figure out how you can take a challenging workflow and use technology to make that more efficient. But I really think that resolution would be, you know, stay curious, stay curious as a trader.

Dan Barnes: Izzy, that’s been fantastic. Thank you so much.

Izzy Conlin: Thank you so much, Dan.

Dan Barnes: I’d like to thank Izzy for herinsights today and of course you for watching. To catch up on our other shows or to subscribe to our newsletter, go to TRADERTV.NET.